There are many investment opportunities out there, but some of the best, most lucrative investment opportunities are exclusively available to accredited investors. The Securities and Exchange Commission (SEC) coined the phrase “accredited investors” in 1933.
The short history of accredited investors
After the Great Depression, many investors were taken advantage of through get-rich-quick schemes. Many of those scams involved unregulated private investments that went wrong. To remedy the problem, the U.S. government created the SEC. One of its first acts was the creation of the definition for accredited investors. This essentially prevented lower income investors from investing in private deals. The purpose was to offer protection to lower income investors who would not be able to financially weather a loss from such an investment if it went wrong.
Furthermore, this restriction was imposed because lower income investors were seen as lacking the same level of investment experience as more wealthy investors. This classification gave greater exposure to a wider range of investments to more wealthy and experienced investors. For the more wealthy investor, they had the opportunity to create an investment portfolio that contained a mixture of investments from low to higher risk profiles.
The premise of this was that most wealthy investors could take on higher risk investments because they had enough capital to cushion any losses. However, wealthy investors usually try to achieve a balance between low and high risk investments. Nevertheless, when their higher risk investments are successful, this allows them to benefit from higher returns.
Over the years, since creating the SEC, the U.S government created and updated many laws. This means private deals are now common and just as legitimate as registered securities. It’s still important to research your potential investments and companies before investing your money, but the SEC has cleaned up the majority of the schemes out there.
Benefits of being an accredited investor
Recently, we have seen the SEC relax some of their rules, which has led to an increased number of potential investors who can now invest in larger investments, such as through crowd funding. However, many investments are still only available to accredited investors. This gives accredited investors the following benefits:
1. Have more investing options. An accredited investor is able to invest in unregistered securities. This means that in addition to your investment options listed on the stock exchange, you can invest in unlisted opportunities. For example, members of the Quinlan|MacKay community have access to a steady pipeline of off-market, A-Class real estate projects. These investment projects are not listed anywhere else, so only a small group of elite investors have access to them.
2. Lower risk by diversifying your investments. No investment is ever risk-free, but by being an accredited investor, you have the opportunity to invest in a wide range of investments. The exact balance of low- and high-risk investments in your portfolio largely depends on your personal level of risk tolerance. While higher risk investments have the potential to produce higher rewards, they are often balanced by more lower risk investments, such as bonds.
However, real estate investments are often included in many portfolios as real estate is generally seen as a lower risk investment compared to many other options. That being said, investing in real estate still comes with risks and so choosing the right investment is absolutely critical. One way to help manage this risk is to work with a group, such as Quinlan|MacKay, who only offers well-screened projects in prime locations that have a strong, positive outlook to their community. Their A-Class, off-market projects are purposely structured with low leverage to lower the overall risk. They are also selected in markets with strong employment growth that keeps the market strong. Projects are also well managed, so you know your investment is in good hands.
3. Enjoy the opportunity to invest in early stage businesses and private companies. Being an accredited investor allows you to jump into an investment during the company’s early development. However, these opportunities, while offering potentially very high returns, also come with greater levels of risk. As an alternative, it’s also possible to invest in early stage real estate projects. Relatively, real estate is considered a lower risk. Instead of thinking of real estate investing as you being a landlord, you can also help fund the development of a new building or property. Investing at the early stage of a project not only provides you with a return on your investment, but it also ensures the project is built. This, in turn, brings about more investment opportunities as well as jobs, homes and more.
Being an accredited real estate investor means investing not only in buildings and properties, but also investing in the lives those buildings and properties will impact.
Who qualifies as an accredited investor?
To qualify as an accredited investor, you must be at least one of the following:
- An individual with an annual income more than $200,000 for the past two years or a joint annual income of $300,000 for the past two years with the expectation that the individual or couple will earn the same or greater income the following year.
- An individual or couple with a net worth of more than $1 million, not including the value of the individual’s or couple’s primary residence.
Quinlan|MacKay investments are only available to accredited investors. By SEC laws, an investor needs to establish and provide proof they qualify before investing. Many people may be accredited investors and not even know they are. So, we hope the information above is helpful. However, you may wonder what’s involved when you want to verify you are an accredited investor. It’s actually a very easy process.
First, an investor completes a form where they simply check a box to indicate how they qualify. For example, whether by their income or by their assets (or by one of the other less used categories). For wage earners, the proof is quite easy. It’s just a matter of supplying copies of your W-2s from the past two years. For someone who is self-employed or using their assets to qualify, it requires third-party verification. Investors often use their accountant who is familiar with their financial status for this process. The accountant simply signs a form to confirm they qualify. It’s as easy as that. There is no need to provide financial statements or your credit report, which often concerns people.
If you believe you qualify as an accredited investor, or would like to find out more about whether you qualify, please contact us. We would be happy to discuss our current investment opportunities.